Question

The following information applies to the questions displayed below.] Jeremy Slacker started the Del Fuego Surf Shop on January 1 after determining that business school classes conflicted with his preferred activity. He invested $50,000 in the shop—$25,000 of his own savings and $25,000 borrowed from an acquaintance. The loan is to be repaid in 5 years. Jeremy will pay the lender annual interest at a rate of 8 percent. Shortly after opening, Jeremy realized that he is not the best financial planner and has come to you for help. With some prodding, you are able to establish that Jeremy plans to sell only two models of surfboard, the Zuma and the Coronado, for at least the first year. Data on the boards are given as follows. Zuma Coronado Expected annual sales (units) 480 240 Retail price (per unit) $ 350 $ 650 Purchase cost (per unit) 250 400 Additional information on the planned operations for the year includes the following. Equipment costing $40,000 was purchased for cash when the store opened. The equipment will be depreciated over five years using straight-line depreciation. Because of the fantastic weather in Del Fuego, Jeremy expects sales to occur uniformly over the year. Sales will be both for cash (60 percent) and on account (40 percent). Sales on account are assumed to be collected in two months. Jeremy will maintain inventory equal to one-half of a month’s sales. All boards will be purchased from the manufacturer on credit with payment made one month after purchase. Annual cash selling, general, and administrative expenses are $36,000 fixed plus 10 percent of revenues. Jeremy’s tax rate is 40 percent.

Required: a. Prepare an income statement for the year based on the data and assumptions available. b. Prepare the year-end (December 31) balance sheet based on the data and assumptions available.

Answer 1

Ansos Page No mcome alment Zoma Sales 480 un kx360 168000 480 lmenhs Afrcach fn onit clening 60 Pachases (480 60)x 50 135000 CevOnado ales 156000 4O X 65O - closing hoch n orits xl.6 d& months 30 Paonchasts 240 30)x 400 08000 40,000 yrays Depacciation cqaipmenk 8000 Variable Selling, general adminishahive expenis=(630t 15600 3a400

ntere on ao00 loan x Q5000 Particalar Coronado Zurma Total Sales $1680001560003a4000 Closig och n unib Clostng afoch ab cof 30 60 50K6O 15000 000 000 Phonchases 4135000)10800f 04 s000) tta0,000 96000 ( 216000) Coof good ofd Gros profit +48000 co0001080c0 Eepues сфифрно в Dopeciabion on administbathue red aling genenal $36000 expenses Vaniable ading general adniniaho -five expercs $32400 Inren est on loaol 10tal ezpenses కవింCC |8400) 9600 Roft behore tax Taxes 407 frankiecd to erene Profit atton taxes 1760

NO 3 Balance heet Receivables 324000 x 40 x 4a1600 Loan payathe 2b000 Acccont Panchas es pryables No if raonth a43000 1amonths 20050 Accont yable - 400250 houon belous The alante toheet is as

Yosticala Armoont Amaunt Atsda Equipments Depreciation 40,000 4 8000 3a000 Cwrent ac 1600 Receivales fnventory carh nhand Total anck 2410 51010 8301 0 iabilitiesnet oo Loan payable Accounts payables విరి,000 - 2035040250 Capibal 5000 Poft for the years Total liabilkties and netuoorh $ 83010